Why does this Copy Loc contraint not work with this IK bone?
The issue you have is parenting. You would have the hand bone as a child of the lower arm bone, this parenting defines the position of the hand, preventing the location constraint from moving it. As the bone parenting doesn't effect the rotation, your rotation constraint can do it's thing.

You have the right idea with using IK, the IK constraint will set the location of the hand bone and move the arm bones to the right position to match it. What you need to do is remove the location constraint and set the empty as the target for the IK constraint.